Tariffs, fuel costs, and rising rates squeeze U.S. manufacturers

Tariffs, fuel costs, and rising rates squeeze U.S. manufacturers

Mon, September 21, 2026 at 3:33 PM GMT+3 3 min read

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American businesses across manufacturing, transportation, and retail are being hit from three directions at once: tariffs that have raised the cost of raw materials, record fuel prices driven by the war with Iran, and the Federal Reserve's first interest rate increase in three years, according to CNBC.

Allen Eden, the 56-year-old owner of the Original Saw Co., a 25-person industrial power saw maker in Britt, Iowa, told CNBC that uncertainty over future parts availability has led him to build up larger reserves of inventory than he would ordinarily keep on hand. A single bracket his motors depend on went from $42 to $87 over the summer — a price increase of more than 100 percent. Price increases for his saws, sold to retailers including Home Depot and directly to manufacturers, look inevitable, he said.

Middle-market manufacturers are caught in a particularly tight bind. Rising steel and aluminum costs push them to raise prices, feeding inflation — and the Fed's rate hike then makes it more expensive to finance the inventory and equipment they need to keep running. Because smaller companies tend to carry short-duration debt, Fed rate moves translate into higher borrowing costs with little delay, JPMorgan Chase global strategy head Dubravko Lakos-Bujas wrote in a September 14 note cited by CNBC.

"The combination of higher rates and higher fuel prices means that sectors with heavy exposure to both are first in the line of fire," Gregory Daco, chief economist at EY-Parthenon, told CNBC.

Auto suppliers illustrate the pressure. Lucerne International, a Detroit-area auto parts manufacturer operating as a private company, suspended its U.S. production and scrapped a planned $50 million aluminum forging facility in Michigan. CEO Mary Buchzeiger cited higher costs for raw materials and finished parts tied to what she called "Trump tariffs 2.0." The company has shifted its U.S. operations to warehousing, distribution, and tariff-mitigation services, which she said carry better margins.

Grupo Antolin, a Spanish auto parts maker that counts Ford, GM, Volkswagen, and Stellantis among its customers, sought Chapter 15 bankruptcy protection in the U.S. in July, with tariffs, rising raw-material and energy costs, and supply-chain disruptions cited as causes.

Diesel prices are a major driver of the squeeze. As diesel's national average climbed to an unprecedented $6.27 a gallon, the war with Iran has restricted tanker traffic through the Strait of Hormuz while Ukrainian drone strikes on Russian refining infrastructure prompted Moscow to ban diesel exports — together removing roughly 20% of the diesel that normally moves by sea, according to analysts at ING.

Jeff Vojta, CEO of Dilworth Coffee, a national coffee distributor based in Raleigh, North Carolina, told CNN that what his business is experiencing today is more stressful than anything the pandemic threw at him. "Between shipping disruptions, the lack of containers, high costs because of what's going on in the Red Sea and higher fertilizer costs, we have this period of disruption that we've never encountered before," he said.

The pain is not evenly distributed. Big technology and financial firms, whose balance sheets tend to feature substantial cash holdings and fixed long-term borrowing, have considerably more cushion against the impact of rising rates. But for capital-intensive sectors — manufacturing, trucking, and commercial real estate — the combination of higher borrowing costs and record fuel prices is compressing margins with few easy options for relief.